Statement of Financial Accounting Concepts No.2

The source is from http://www.fasb.org/pdf/con2.pdf.

CON.2: Qualitative Chracteristics of Accounting Information
Summary: To meet the CON1's concept, "Usefulness", financial reporting must contain the relevant and reliabile information. Financial reportings must contain the comparable and consistent information. Not material in nature is not accounted since it make any difference for its financial reporting.

Hierarchy of Accounting Qualities: As CON.1 stated, financial reporting must be useful to external users. "Optimal information for one user is not optimal for another." It is hard to get unanimous from all the individuals. Understandability of infromation is depend on characteristics of the decision-maker and also characteristics of information itself.
The most importantly, the benefit of using the financial statements must be greater than its costs.
Then Understandability is heavily rely on to external users' knowledge.
For SFAC No2, it assumes that external users have reasonable knowledge to understand financial statements.
Primary Decision-Specific Qualities: Relevance and Reliability
Ideally, financial reporting shold provide more reliability and more relevance to make it more useful.
To meet the relevance characteristic, financial statements should consist of 3 sub-qualities: Predictability, Feedback value, Timeliness.
The informaiton has to be timely. For the valuation of a security, using the most curent 10 yr Treasury Note rate as a risk free rate. If old rate were used, then the calculated security value would not reflect proper value of the security.
By using the most up-to-date information, decision-maker can make more appropriate decision making.
Old informaiton tend not to reflect the current company performance well.

To meet the reliabile characteristic, the information has to be accurate. There are 3 quality characteristics: Neutrality, Representative Faithfulness, Verifiability.
With containing of error, the information is useless since cannot be made proper decision from the wrong information. Verifiability is the characteristics to make sure the value is correct by using the same measurement methods to meet the reliability. Neutrality characterisctics means when setting a standard, the primary concerns are whether the standard or primary interest for the standard is biased. Obviously, biased information distort the values from the actual. Biased information cannot meet the CON.1objective of "usefulness." Therefore, for all standard must be netural position (Unbiased) in nature.

Secondary Qualities: Comparability and Consistency
usefulness increase if the information is comparable with other entities. When conduct fundamenta valuation, the basis of the fundamenta valuation is the numbers from the financial reportings. If the each company uses different accounting method, then financial reportings among those companies are not comparable. In that case, it is difficult to derive the comparable values.
Consistency is also important to increase financial reporting usefulness.
Many investors or creditors uses a company's financial reporting every year to see the company's financial health. If the financial reporting information is not consistent, then investors or creditors have difficulty to measure the company's true changes.

Materiality
amounts are too small to make difference.